Mexican Car Makers Breathe Sigh Of Relief After New U.S. Trade Deal

By Jorge Valencia
Published: Wednesday, October 3, 2018 - 5:10am
Updated: Wednesday, October 3, 2018 - 3:33pm

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Oscar Garcia, an auto plant manager near Mexico City
Jorge Valencia/FronterasDesk
Oscar Garcia, an auto plant manager near Mexico City, said he hopes the American government will realize that what’s good for its neighbors is good for the American economy.

The Trump administration this week reached a preliminary trade deal with Mexico and Canada that’s designed to encourage car companies to make more of their products in the U.S. After all, in the 20 years since the North American Free Trade Agreement, manufacturers have turned to the cheaper labor pool south of the border for more affordable cars and car parts.

So is this a clear-cut win for America and a loss for Mexico? 

On a recent Sunday afternoon, Oscar Garcia steered his car down a highway surrounding the heart of Mexico City. Garcia, the facilities manager at a nearby car parts manufacturer called Rassinni, pointed at cars that use parts from his company: BMW, Jeep and Ford. 

In many cases, these cars are assembled in the U.S. with Mexican-made components.

“That Explorer,” Garcia said, pointing at a black SUV, “is assembled in the U.S.”

Indeed, Rassinni makes suspensions for the Ford Explorer, which is then assembled at a plant in Chicago and exported to several countries, including Mexico.

Under the Trump administration’s preliminary terms with Mexico, 45 percent of the components of this Ford Explorer will have to come from factories where the pay is at least $16 per hour. Garcia, a mid-level manager, says he makes just under $10. The terms, according to the U.S. trade office, would require Ford to pay a 2.5 percent tariff if not enough of the Explorer’s parts meet the wage requirement. 

There are few publicly available details about how the wage requirement would be enforced, and it’s not entirely clear how the U.S. Commerce Department would determine if a company doesn’t comply with the rule. 

But "if that's the case, 2.5 percent in a vast majority of cases is going to be cheaper than raising the wage in Mexico to $16 per hour," said Kristin Dziczek, an economist with the Center for Automotive Research, a Michigan-based think tank.

Mexican government statistics show less than one percent of the country’s working population earns at least $16 per hour. Mexican manufacturers are unlikely to raise wages to that level, said Manuel Montoya, president of an association of car part makers in the industrial city of Monterrey. 

Montoya said he wishes the terms were more favorable to Mexican businesses, but he’s relieved that after a year of negotiations, the U.S. and Mexico are close to an agreement.  

“Now we can plan,” he said. 

Montoya’s plans, however, may need to be flexible. Congress has to ratify any deal, and it’s not yet clear whether this agreement will have enough votes to be approved. 

Mexico City’s Interior Circuit, which loops around the city’s central core, is full of American brand names and U.S.-built cars. Mexico was the fourth biggest market for American car exports last year, after Canada, China and Germany, according to the U.S. Department of Commerce

Garcia, the auto plant manager cruising down the highway, said he hopes the U.S. will realize that what’s good for its neighbors is good for the American economy.

But, he added, Mexicans should keep working hard so that their own industry will grow — even if the U.S.-Mexico-Canada trade agreement some day disappears.

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